President Abdel-Fattah Al-Sisi suggested on Sunday that Egypt may be forced to re-evaluate its $8 billion loan programme with the International Monetary Fund (IMF) if the accompanying reforms, coming in parallel with unprecedented geopolitical challenges, put intolerable economic pressures on Egyptian citizens.

The reforms Egypt agreed with the IMF to apply in return for acquiring the $8 billion loan in March included devaluing the currency while fully liberalising the exchange-rate regime. They also include trimming public spending on subsidies, a policy that has led to increasing the price of subsidised bread by 300 per cent, increasing electricity tariffs by 40 per cent, and hiking fuel prices three times, the latest of which was on Friday.

The prices of all fuel products have surged by 10 to 17 per cent, bringing the overall increase in different Octane gas types since the beginning of the year to 33 to 38 per cent and that of diesel to 63 per cent.

While the government has offered social-support packages to cushion the inflationary pressures resulting from these moves, many people are struggling to make ends meet amid the spiralling costs of living.

The regional conflicts, especially the disruptions in the Red Sea due to the Yemeni Houthis’ attacks on ships in retaliation for Israel’s hostilities in Gaza, have slowed down shipping activity in the Suez Canal, trimming revenues by at least 60 per cent.

Revenue fell to $870 million in the second quarter from $2.54 billion a year earlier.

President Al-Sisi noted that “if the [economic] challenges force me to place unbearable pressure on the public, we must review the situation with the IMF.” Later in the day, Prime Minister Mustafa Madbouli said that no further increases are expected in fuel prices during the next six months.

“The government is fully aware of the impact of rising prices on citizens,” Madbouli said in a televised statement. “We are taking steps to manage inflation and stabilise fuel prices. We will not raise fuel prices again in the next six months.”

The last increases in fuel prices are part of an initiative to “ensure the availability of petroleum products, regulate market performance according to established pricing mechanisms, and reduce the gap between the selling prices of petroleum products and their high production and import costs,” said a note by the Petroleum Ministry.

At their new level, petrol and diesel prices are only 15 and 31 per cent subsidised by the government, according to unnamed sources quoted by the online news portal Enterprise. In May, Madbouli said that the fuel subsidies would phase out by the end of 2025.

The latest increases will save the state coffers LE10 billion in the third quarter of 2024-2025.

The Petroleum Ministry note highlighted the fact that the Fuel Pricing Committee that reviews prices will not convene in January and will meet again in six months to review prices. The committee was established in 2019 to adjust prices quarterly to bring them into line with global prices, with the stipulation that its adjustments do not exceed 10 per cent.

However, since the beginning of 2024, its adjustments have been in double digits.

Under the recent hikes, the prices of Octane 95, Octane 92, and Octane 80 increased by 13.3, 10.9, and 12.2 per cent, respectively. The highest increase was in diesel prices, which jumped by 17.4 per cent to LE11.5 per litre.

Diesel is widely used for transporting both individuals and commodities. The increases were immediately reflected in transport costs, and the Cairo governorate announced increases in the fares of public buses, white taxis, and minibuses.

Government sources speaking to local news outlets also expected a substantial increase that might reach LE100 million in the monthly operating costs of the railways.

While the government has kept mazut prices stable for electricity generation and food industries, the price provided to the industrial sector increased by 11.8 per cent.

A survey conducted by Al-Sharq Business, an affiliate of Bloomberg, of 15 investors from different economic sectors on the expected effect of the adjustments in fuel prices suggests that the cost of production of agricultural products is likely to rise by 10 per cent, real estate and construction materials by 15 per cent, and costs in the industrial sector by five per cent.

Increases in fuel prices are to be blamed for the inflation rate accelerating in the last two months to reach 26.4 per cent in September, and several local investment banks agree that the latest increases will push the inflation rate at least up by one to two per cent in the coming two months.

Noaman Khaled, a senior economist at the National Bank of Kuwait, wrote in a recent note that subsidised energy prices cause stakeholders such as the Egypt General Petroleum Corporation (EGPC) to accumulate large debts to energy providers, which later force the authorities to institute hefty energy price hikes amid a weaker exchange rate in a loop that has persisted for at least a decade.

But an anonymous source told CNN Business Arabic on Monday that the Madbouli government has asked the IMF for an extension of the period agreed upon for implementing reforms agreed upon as part of the loan programme.

This comes as Egypt has to repay $39 billion in debt repayments until July 2025.

The government is trying to cover part of these dues by offering airports and banks for privatisation. It is also betting on Gulf investments, with Kuwait expressing an interest in transferring its deposit with the Central Bank of Egypt (CBE) to investments and Saudi Crown Prince Mohamed Bin Salman signing in Cairo last week a new agreement to encourage investment between the two countries. A joint Supreme Coordination Council to deepen cooperation was also announced.

This follows up last month’s announcement that the Saudi Public Investment Fund would invest $5 billion in Egypt.

* A version of this article appears in print in the 24 October, 2024 edition of Al-Ahram Weekly